The federal government is changing regulatory guidelines used by the Patented Medicine Prices Review Board (PMPRB) to force lower prices for new drugs. At the same time, Ottawa is considering ways to implement national pharmacare, which the federal Liberals are expected to announce as part of their upcoming budget. The official justification for both is the same: the cost of pharmaceuticals.

But policy-makers are not fully informed about pharmaceutical costs, particularly regarding patented medicines. This should alarm patients and taxpayers. The potential unintended consequences are significant. Previous research suggests these policies will reduce access to new medicines for patients and impose massive new costs on taxpayers. Facts matter.

The Canadian Health Policy Institute (CHPI) used data from the PMPRB, the Canadian Institute for Health Information (CIHI), and Statistics Canada to identify the direct cost of patented drugs and to assess affordability relative to GDP and other health-care costs.

In 2017, CIHI reported $38.2 billion was spent on all “drugs.” Yet, according to PMPRB, total gross sales of patented drugs at factory list prices were $16.8 billion in 2017, which accounts for only 44 per cent of the “drugs” total reported by CIHI that year. Net sales are even lower after rebates. Ontario’s auditor general reported the rebate was 30 per cent for the provincial public drug plans in 2017.

CIHI’s “drugs” expenditures are often falsely equated with manufacturers’ sales of patented drugs, and then cited as a reason to justify government intervention to control prices. But actual costs attributable directly to patented drugs are only a fraction of CIHI’s total published “drugs” costs. CIHI’s data are defined to include patented and non-patented drugs, prescribed and non-prescribed drugs, wholesale and retail markups, pharmacy fees, costs for non-drug personal health supplies, drug plan administration, drug development research by pharmaceutical companies and even sales taxes — all aggregated under the “drugs” expenditures label.

Potential unintended consequences are significant

CHPI analyzed the historical data and found that gross manufacturer sales of patented drugs have accounted for less than one per cent of GDP for the last 28 years. Patented drugs were the same percentage of GDP in 2017 (0.78 per cent) as in 2003 (0.78 per cent), a 15-year period of zero average annual growth relative to GDP.

Gross sales of patented drugs accounted for only 6.9 per cent of the $243.4 billion reported by CIHI for total health spending in Canada in 2017. Patented drugs actually accounted for a smaller percentage of total health spending in 2017 (6.9 per cent) than in the year 2001 (7.1 per cent).

Public drug plan spending on the direct costs of patented drugs at factory list prices was $7.0 billion in 2017, representing only 4.2 per cent of the $165.7 billion in total health spending by federal, provincial and territorial governments that year. Gross sales of patented drugs were the same percentage of government health costs in 2017 (4.2 per cent) as in 2000 (4.2 per cent), an 18-year period of zero average annual growth relative to total government health expenditure.

PMPRB data show that the net prices of patented drugs in Canada have grown slower than the Consumer Price Index in 28 of the 30 years from 1988 to 2017. PMPRB data also show that, adjusted for currency exchange rates, gross median international prices have been higher than Canadian prices for the last 11 years; as much as 26-per-cent higher in 2017. When the PMPRB used the gross mean (or average) prices, and adjusted currencies at purchasing-power parities, international prices for patented drugs were 53-per-cent higher than Canadian prices in 2017, and the gap has been widening (from four-per-cent higher in 2007).

The PMPRB reforms and national pharmacare are misguided by false assumptions about the need for government to control the cost of prescription drugs, particularly patented medicines. And, they fail to acknowledge that the cost of patented drugs must be weighed against health and economic benefits. Research shows that the use of newer medicines is linked to improved health outcomes, lower potential health-system costs and reduced economic productivity losses from untreated or under-treated illness.

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